Lighthouse Funds plans $200 million third fund, its largest so far

Set up by Krishnaswami and Sean Novak, Lighthouse typically invests in the range of $5-20 million per transaction in consumer-facing firms.

India-focused Lighthouse Funds is readying to raise its third and largest private equity (PE) fund, a top executive said.

“Following the success of our last two funds, we are looking to raise $200 million for our third fund,” said Mukund Krishnaswami, founding partner of Lighthouse.

Set up by Krishnaswami and Sean Novak, Lighthouse typically invests in the range of $5-20 million per transaction in consumer-facing firms. The fund inducted Sachin Bhartiya as a partner in 2007.

Lighthouse Funds currently has a corpus of approximately $235 million. The PE fund has raised two funds of $100 million and $135 million. It has invested in 17 companies since it raised its first fund in 2009.

“From the first fund we have made 11 investments and exited six, and have made one partial exit in a company called XSEED Education. At the time of investment, XSEED, which developed specialized academic programmes for its member schools, had close to 50,000 students enrolled and will end this academic year with approximately 1.6 million students,” Krishnaswami said.

In the past year, Lighthouse exited its 2010 investment in agro-chemicals formulation firm Dhanuka Agritech Ltd, and its investment in premium biscuit maker Unibic Foods, in which it sold its stake to Peepul Capital for an undisclosed sum.

Early this year, Lighthouse also sold its stake in Kolkata-based diagnostic chain, Suraksha Diagnostics, the details of which weren’t made public.

“We exited Suraksha at a range of exit multiples between 2.5x-7x on invested capital… Overall, Lighthouse has returned 1.7x of invested capital, with four assets still to exit,” Krishnaswami said.

Lighthouse closed its second fund in 2015 at $135 million, receiving a $42 million investment commitment from the US government’s development finance institution Overseas Private Investment Corporation. From the second fund, Lighthouse has made six investments till date.

In March, the PE fund picked up a stake in Delhi-based non-banking financial company Capital Trust Ltd. It invested in Indian ethnic apparel and home accessories brand Fabindia in the previous month.

The fund’s other notable investments include leading snack foods firm Bikaji Foods International and personal care brand Kama Ayurveda.

To help its portfolio firms scale up, the PE fund has created an operating executive council, comprising a team of industry veterans including Ravi Chaturvedi, a former global president of Procter and Gamble Co. He works directly with the companies in Lighthouse’s portfolio.

According to the India private equity 2017 report by Bain India, capital-raising is expected to be top priority for funds in 2017. However, investors surveyed also believe that the fund-raising environment will get more challenging this year. “A majority of funds reported greater participation from LPs (limited partners) in the form of passive co-investment rights in their current portfolio. Funds expect LPs to play a more active role in 2017 and will likely offer more co-investment opportunities,” the report said.

India continued to be an attractive destination for investments. Fund allocations to India in 2016 increased by 8% over the previous year. The PE firms in the country were sitting on a dry powder of $9 billion, which was similar to 2015, reaffirming the potential for investments in the Indian market.